Thomas Herndon’s Dismantling of Study Justifying Austerity

Thomas Herndon studied economics and political economy at the Evergreen State College. He was an excellent student. His purpose for studying economics was so that he could learn to more effectively criticize and challenge the unequal and unjust economic system of capitalism, to challenge its apologists and to be able to work with the 99% to develop short and long run alternatives to this unsustainable system. Thomas was a teaching assistant in the political economy and social movements program that I taught with Zoltan Grossman and Anthony Zaragoza in fall 2006, winter 2007. Besides tutoring and teaching students, he also gave an outstanding lecture on the growing financial crisis. One of his passions was analytical and strong criticisms of neoliberalism, the ideology that shapes austerity policy.

By neoliberalism, I mean the belief in unregulated markets and trade, in privatization, in shrinking public social programs, in balancing the government budget, and the free flow of capital across borders no matter what the human cost. Austerity is the related economic policy of reducing spending in social programs for education and health, for layoffs of public workers, for cutting wages, and raising taxes, even on those who cannot afford it. The governments of Greece, Ireland, Portugal, Cyprus, Spain have had to go to the International Monetary Fund and the European Union to get loans to cover private bank losses, international trade deficits and especially, government deficits. The conditions for governments getting these loans from these international financial institutions have been the acceptance and imposition of austerity policies on their populations. These policies do not work even on their own terms. They do not usually reduce the government deficit, which is government revenue minus taxes, as they reduce business and individual income which further reduces tax receipts. It is the cat chasing its tail. The human costs have been horrendous: economic depression, 50% plus unemployment of young people, and the huge growth of hunger and poverty.

Two very prominent Harvard economists, and formerly leading economists for the International Monetary Fund, Carmen Reinhart and Kenneth Rogoff, concluded, based on their “objective” statistical analysis, that once government debt reached 90% of GDP, future government deficits would cause stagnation or decline. Therefore to them, austerity policies to reduce government spending are absolutely necessary. I am quite sure that Thomas Herndon’s healthy skepticism for the mainstream austerity prescription led to his decision to study their data and methodology, to request their data and to carefully examine it. Thomas showed clearly and definitively their many errors and most importantly, proved that their data does not support their conclusion that austerity is the necessary medicine for countries with significant deficits and debt. He was not intimidated by their prestige within the mainstream economics profession. We all owe a debt to Thomas Herndon for his work as a graduate student in economics at the University of Massachusetts where he has poked a big hole in these anti-human austerity policies.

I am proud of Thomas Herndon and am confident that this will be just one of his many contributions through his research, writing, teaching and other forms of activism– towards creating a sustainable world where global poverty and hunger are abolished; and where equality and human dignity for all, becomes the reality.